Overview of What is a Running Account Bill

A Running Account Bill is a type of progressive billing commonly used in the construction industry. It allows contractors to submit invoices to clients at regular intervals throughout the life of a project, rather than waiting until the entire project is completed. This type of billing is especially useful for large or long-duration projects where payments are made based on work completed up to a certain point, rather than after the entire project has been finished.

Key Characteristics of Running Account Bill

1. Periodic Billing:

   • A running account bill is issued periodically, usually on a monthly basis, or according to milestones or stages of the project. The amount billed is based on the progress made up to that point. As construction progresses, the contractor submits bills for the portion of work completed, and payments are made accordingly.

2. Progress Payments:

   • The contractor can claim payments for the work completed, which are usually calculated based on the percentage of work completed. For example, if a certain portion of the building is completed, the contractor will invoice for that portion, even though the entire project is not finished.

3. Adjustments for Previous Payments:

   • Running account bills often include adjustments for any payments made in previous billing periods. For example, if the client has already paid for some of the work in the earlier period, the contractor will deduct these amounts from the current bill.

4. Retention:

   • It’s common for a portion of the running account payment to be withheld as retention money. This is done to ensure that the contractor completes the work satisfactorily. Typically, this is around 5-10% of each invoice, which is paid out upon project completion or after certain conditions are met.

5. Detailed Work Breakdown:

   • Running account bills provide a detailed breakdown of the work completed. This helps both parties (contractor and client) track the progress of the project and ensure transparency. The breakdown may include quantities of work completed, labor and material costs, overheads, and any other applicable charges.

6. Adjustments for Variations:

   • If there are changes to the scope of the project (e.g., additions, deletions, or modifications), a running account bill may include adjustments for these variations. These adjustments must be agreed upon by both the contractor and the client and are typically documented in writing.

7. Final Payment:

   • The final payment in a running account billing system is usually made when the project is fully completed and all work has been accepted. This final payment includes any retention money held back during the course of the project.

Advantages of Running Account Bill

1. Improved Cash Flow:

   • Running account bills help improve cash flow for contractors, as they receive payments regularly based on the work completed. This is particularly beneficial for large projects with extended timelines where it would otherwise be difficult for contractors to wait until completion for payment.

2. Project Monitoring:

   • It helps both the client and the contractor keep track of the project’s progress and costs. By receiving regular updates on the status of the work and the payments made, both parties can monitor the financial health of the project and make adjustments as needed.

3. Flexibility:

   • Running account bills offer flexibility, as they allow for the gradual adjustment of the invoicing process based on project changes, progress, and variations. They also allow for greater collaboration between the contractor and client during the course of the project.

4. Better Risk Management:

   • Since payments are made based on the work completed rather than waiting for the final completion, both parties share the risk throughout the project. The client pays for the progress made, while the contractor receives compensation for their ongoing work.

5. Dispute Prevention:

   • Clear and regular invoicing through running account bills can reduce the chances of disputes related to payment delays, as there is transparency and a clear record of what has been paid and what remains outstanding.

Challenges of Running Account Bills

1. Complexity:

   • Running account billing can be complex and time-consuming, especially for large projects with many phases. Contractors need to keep detailed records of progress, quantities, materials, and labor to ensure that the bills are accurate.

2. Delays in Payment:

   • Although running account bills offer periodic payments, there can still be delays in payments due to approval processes, client concerns, or disputes over the work completed. This can affect the contractor’s cash flow and project progress.

3. Retention Management:

   • The withholding of retention money until project completion can create financial strain for the contractor. Contractors must manage their resources effectively to ensure that they can cover costs during the retention period.

4. Potential for Disputes:

   • If there are disagreements about the amount of work completed or the value of completed work, the running account bill process may lead to disputes. It’s crucial for both parties to have a clear understanding of the project’s progress and to agree on measurements and payment terms regularly.

How to Manage Running Account Billing Effectively

1. Accurate Record-Keeping:

   • Contractors should maintain accurate and up-to-date records of all completed work, labor hours, materials used, and payments received. This will help avoid discrepancies during the billing process and make it easier to justify claims when invoicing.

2. Clear Communication:

   • It is important for contractors and clients to have clear communication throughout the project. Regular meetings to discuss project progress, changes, and financial status can help avoid misunderstandings and disputes related to running account bills.

3. Proper Documentation:

   • Each running account bill should be well-documented with clear itemization of work completed, costs incurred, and any changes in scope or variations. This helps both parties verify the charges and ensures transparency in the billing process.

Conclusion

Running account bills are a useful and efficient way of managing payments for long-duration construction projects. They allow contractors to receive periodic payments based on the work completed, which helps maintain cash flow and ensures project progress. Clients, in turn, benefit from the ability to monitor the project’s progress and costs at regular intervals, which helps reduce the risk of financial mismanagement. Despite their advantages, careful management is required to ensure that running account bills are accurate, transparent, and fair to both parties.

For professionals seeking to improve their understanding of billing processes, Bhadanis online courses offer specialized training in billing engineering, cost estimation, tendering, construction contracts management, and construction project management, helping you master the art of construction billing and contract administration.

Sun Jan 26, 2025